In the recent North Carolina Court of Appeals case, Gardner v. Tallmadge, the Court held that a foreign judgment (a judgment issued in another state) was not enforceable in North Carolina since the Ohio court that originally issued the judgment lacked subject matter jurisdiction to do so.

In Gardner, Mr. Tallmadge entered into a demand cognovit promissory note with Mr. Gardner.  A cognovit agreement is one in which the debtor agrees in advance that the creditor may obtain a judgment against the debtor without notice or hearing.  Additionally, the creditor may appoint a lawyer to represent the debtor and be present at the hearing.  In this instance, following the debtor’s alleged breach of the promissory note, the creditor filed a complaint and appointed an attorney to represent the debtor.  At the hearing, such attorney agreed a verdict should be issued for the creditor.

After the Ohio judgment was issued, the creditor attempted to enforce the judgment in Rockingham County North Carolina.  The debtor asserted various defenses—one being that the Ohio court lacked subject matter jurisdiction to issue the original judgment.

The Court of Appeals agreed with the debtor that the Ohio court lacked subject matter jurisdiction.  The Court based its finding on Ohio statutes and case law that render cognovit agreements invalid and deny courts jurisdiction to enforce them unless the agreement contains warning language that is distinctively marked or in a distinctive font size that is easily noticeable.  Here, the Court felt the cognovit agreement found in the promissory note signed by the debtor did not conform with such requirements.

North Carolina does not have the legal mechanism for the cognovit agreements which does not appear to have been an issue for the North Carolina Court.  In order to be able to successfully transfer a foreign judgment to another state, there are certain requirements which must be met.  For the most part, judgments are transferable from one state to another.  Thus, if you obtain a judgment and the debtor resides in another state and/or has assets in another state, transferring the judgment to “the other state” could prove worthwhile in satisfying the judgment.

If you have questions about foreign judgments, please feel free to call us.